Delivering sustainable development

:
A principled approach to public-private finance
The sustainable development goals (SDGs) will require
significant financing. Governments across the world are
increasingly looking at ways of working with the private
sector in order to meet financing needs and they will need
to find ways of maximising the contribution of these actors.
This depends on ensuring that activities undertaken
conform to high standards of sustainable development,
including ensuring social and environmental justice.
This discussion document provides initial ideas for how to
do this by proposing a set of principles to assist
governments to apply best practice, international standards
and learning more systematically to help ensure best
outcomes for sustainable development.
It draws on existing practice, such as standards and
safeguards, and information from interviews with donors. It
is rooted in accepted global standards and legally binding
principles, such as the UN’s sustainable development
principles, development effectiveness principles as well as
the human rights obligations of both the state and the
private sector as reflected in the UN Guiding Principles on

Business and Human Rights. The document goes beyond
mitigating risks to ensure a positive and responsible
contribution to sustainable development, while maintaining
a clear call for effective safeguards.
This is not the final answer, but the start of a path towards it. It
is intended as an input to the UN Financing for Development
Conference (FFD) in Addis Ababa in July 2015. Here a
systematic and consistent approach can be agreed.
The proposal is for all governments to apply the following
sustainable development principles to all projects where
public finance is used in conjunction with private finance.
The principles will be used both in the process of project
and programme design and development as well as in any
monitoring and accountability mechanisms. These highlevel principles should be used with explicit reference to
and in adherence with the best practice rules and
safeguards mentioned above, and not as a substitute for
them.
The diagram below shows the broad principles that we
consider the most relevant.

Leveraging: The changing world of development finance
Donors and other development actors have always worked
with the private sector but the importance and nature of that
collaboration is rapidly changing. Whereas discussions
around the Millennium Development Goals (MDGs)
concentrated on mobilising public finance, the focus of the
SDGs and FFD debates has been much broader – on getting
the best mix of public and private finance, on domestic
resource mobilisation and on transformative structural
changes in areas such as tax, debt and trade.

Public engagement with the private sector
to advance sustainable development
Most development actors, bilateral and multilateral,
have increased their engagement with the private
sector. An ITUC study found that the private sector
is a main priority in 19 out of 23 donor development
strategies examined.1 This policy priority has been
translated into financial support. According to the
International Finance Corporation (IFC), there has
been a ten-fold growth of financial commitments to
the private sector with public money between the
early 1990s and 2010.2 By 2015, the amount flowing
to the private sector is expected to exceed USD 100
billion – which is equivalent to almost two thirds of
official development assistance (ODA). Between 2003
and 2013, the consolidated portfolio of European
development finance institutions increased from EUR
10 to 28 billion.3

International public finance, whether Official Development
Assistance (ODA) or concessional or non-concessional
loans, remains absolutely key for sustainable development.
It is therefore essential to ensure that where public finance is
used to mobilise additional resources through the private
sector – known as “leveraging” – it also has the maximum
contribution towards sustainable development results.
Although “leveraging” is not a term used in a consistent way,
it is defined by the World Bank as: “the ability of a public
financial commitment to mobilise some larger multiple of
private capital for investment in a specific project or
undertaking.”5 That is, it involves a small amount of public
money or a guarantee being put on the table to encourage
the investment of a larger sum of private money.

“

Sustainable Development is
development that meets the needs of
the present without compromising
the ability of future generations to
meet their own needs.
4

”

There are many ways that this money is leveraged by donor
institutions, but it has often been through Development
Finance Institutions (DFIs) – government-controlled
institutions that invest in private sector projects in developing
countries. They can be multilateral or bilateral. The World
Bank Group’s IFC has played a dominant role in setting
standards, but bilateral institutions like the UK’s CDC and
multilateral facilities like Private Infrastructure Development
Group (PIDG) are also key. This paper focuses on the full
range of donor institutions that mobilise private capital, with
particular emphasis on DFIs as the biggest players.
Donor governments have obligations under international law,
which are relevant to their engagement with the private
sector, as reflected for human rights in the UN Guiding
Principles. The majority of institutions and facilities are
signatories to voluntary codes of conduct, like the Equator
Principles, the UN Principles for Responsible Investment
(UNPRI), or other responsible financing frameworks. These
commitments are often complemented by institutional codes
of conduct, due diligence and other internal policies. For
example, the IFC’s Performance Standards are often used by
other institutions and facilities.
However, the implementation of these standards is
challenging. Various donors we interviewed recognised that
this is a new area and that their thinking around impact and
accountability is still emerging. An analysis of 10 international
development agencies which focussed on relationship with
multinational corporations shows that agencies are at various
stages of developing their initiatives and that commitments
are difficult to quantify due to lack of, or differences in,
reporting.6

1.Business Accountability For Development, by ITUC-TUDCN and EURODAD, supported by the
CPDE, 2015. http://www.ituc-csi.org/business-accountability-for-development

Main sustainable development challenges in using public money
to leverage private finance
Using public money to leverage private finance presents
many challenges. Most of them are due to the conflict
between the different expectations and incentives driving the
public and the private sectors, the way the financial
institutions and facilities are governed, the lack of common
standards and the systems needed to implement them.
Furthermore, using ODA in this way means there is less
money available for the things only ODA can support, i.e.
programmes and projects targeted to fight poverty directly
through essential services.7
Challenge of delivering sustainable development results
– donors face challenges demonstrating effects on poverty
reduction in developing countries, including impacts on
reducing inequality, on women’s rights and on marginalised
groups. This is partially due to the nature of investing in the
private sector, where social outputs are not the primary
objective of the private sector partner, and are difficult to
measure. A 2014 review by the Bank’s Independent Evaluation
Group looking at 128 World Bank-financed Public-Private
partnerships (PPPs) found that the main measure of ‘success’
is profitability – other factors are rarely considered.8 Where
donors do focus on development impacts, they tend to target
a narrow set of outcomes such as a broad measure of job
creation, rather than systematically identifying opportunities for
positive impacts. They sometimes have strong safeguards to
mitigate harm, but these are often poorly implemented and

enforced, as the recent CAO audit of IFC financial sector
investments has powerfully shown. Additionally, there is the
challenge to ensure that all new developments are part of a
low carbon development pathway.
Challenges of participation, accountability and redress
– while most institutions and facilities leveraging private
sector investment are at least partly owned by donor
governments, there is limited formal consultation and rare
parliamentary scrutiny. Dialogue with affected communities
and Civil Society Organisations (CSO), both in donor and
beneficiary countries, is insufficient, in particular in seeking
consent and in the establishment of grievance mechanisms
to resolve and remedy disputes.10 Consultations with
business associations or firms in the developing countries
involved are also rare. While the IFC and other multilateral
institutions have already put in place independent grievance
and redress mechanisms, European bilateral institutions and
facilities rarely have such mechanisms, or are in the process
of developing them.11 At the same time, Project Preparation
Facilities (PPFs) are compressing the time for project
preparation, expediting land acquisition, and standardising
bidding, procurement and other processes.12 In some
instances, this reduces the possibilities to properly identify
and involve stakeholders in development initiatives, opening
the possibility of negative human rights impacts.13

Mongolian herders file complaint with EBRD about Mongolian iron ore company 9
In January 2012, the European Bank for Reconstruction and Development (EBRD) approved a debt financing
of up to USD 30 million and equity financing of up to USD 25 million to the Mongolian private mining company
Altain Khuder LLC for the development of its Tayan Nuur iron ore mine in western Mongolia. The project was
intended to support sustainable development of the Mongolian mining sector and help set corporate and
industry standards including transparency, environmental and social management practices.
Herders from the Gobi Altai Mountains in western Mongolia filed a complaint with the EBRD in December
2014 claiming that roads to service the mine had caused pollution, loss of livelihoods and displacement
of herders in the Gobi Altai mountain region. Customary mobile grazing rights had also been undermined.
Complaints made directly to the company were met with intimidation and legal action.
The herders claimed that the EBRD’s social and environmental standards had been breached and requested
a full assessment of the mine’s impacts, swift completion of the paved road with adequate overpasses,
restoration of degraded and polluted land, compensation for the loss of animals and the implementation
of a comprehensive livelihood restoration programme in consultation with all stakeholders involved. The
complaint is currently being reviewed.

EcoEnergy’s Land Grab in Tanzania: the importance of Free, Prior and Informed
Consent for all communities (FPIC), March 201514
Rural communities in the Bagamoyo district of Tanzania are opposing a sugar cane plantation project planned
by EcoEnergy, a Swedish company that has secured a lease of over 20,000 hectares of land for the next 99
years. In the first phases of the project, approximately 1,300 people – mainly farmers – will lose some or all
of their land and/or their homes. There will be further displacements in subsequent phases and ActionAid
estimates that hundreds of people could be affected.
EcoEnergy’s plan to develop a sugar cane plantation is a flagship project of the New Alliance for Food Security
and Nutrition, the G8’s African agriculture initiative. It receives direct support from the African Development
Bank (AfDB), the International Fund for Agriculture Development and the Swedish International Development
Agency. The project is thus proceeding according to the Operational Safeguards of the AfDB and the
Performance Standards of the IFC.
These standards, while stressing that involuntary resettlement should be avoided, do not require securing
FPIC of all project-affected people, but only of indigenous people. In this project, as affected communities are
not indigenous people, they have not been offered the choice of whether to be resettled or not; they have only
been offered a choice of whether to receive compensation in cash or land for being resettled. These are two
different things.

Challenge of transparency – development agencies have
a poor track record with respect to transparency of
contracts, finance, and project impacts, especially when
dealing with financial intermediaries, such as banks and
private equity funds, and their clients. This is partly due to the
desire to protect commercial confidentiality. For example, the
IFC’s Access to Information Policy has been criticised for
being far weaker than those of the public lending arms of the
World Bank Group.15 The European Investment Bank has
recently adopted a more restrictive transparency policy,
allowing the EIB to establish a new presumption of
confidentiality to keep secret internal investigations into
irregularities such as corruption and maladministration.16
Challenge to link to national development priorities
– the way that DFIs operate makes it difficult for them to align
their activities with the priorities of governments, local
businesses and poor communities in partner countries. DFIs
are usually driven by developed country priorities, with little or
weak representation by recipient countries, as becomes
evident when analysing the governance structure of existing
DFIs or the EU’s Platform for Blending in External
Cooperation. The sectoral focus of bilateral DFIs tends to be
driven by home government priorities and business sector
expertise,17 rather than prioritising the sectors with most
potential for growth in a specific developing country context.
Nine out of 23 donor policies explicitly reference supporting
the donor-country or their own businesses abroad. The

creation of a diversified local private sector in developing
countries, while central to many national development
strategies, does not seem to be a priority.18
Challenge to demonstrate additionality – DFIs frequently
quote “leverage ratios” that are based on the assumption
that all of their financing is new and additional, and that
co-financiers would not have made any investments without
the DFIs’ involvement. A study by UKAN19 of 19 available
evaluations of “leveraged” projects using ODA found that there
is very little evidence of either financial or development
additionality. It also found that there were few evaluations
carried out of such projects, and that there was no common or
robust approach to measuring additionality.20 A report by the
European Court of Auditors on EU blending activities21 claimed
that “the need for a grant to enable the loan to be contracted
was demonstrated for only half of the projects examined”.
Challenges of selected financing mechanisms for
infrastructure projects – the need to facilitate private
sector involvement is one of the main drivers behind the
“leveraging” agenda. PPPs have been the selected financing
mechanism to structure much-needed infrastructure projects.
However, infrastructure PPPs have a poor track record of
serving poor customers and the financial track record of PPPs
is mixed at best. There is significant evidence to show that
costs can be high for governments, as can risks and debt
arising from contractual obligations and contingent liabilities.22

criteria used by development cooperation actors to assess the additionality of engagements with
the private sector”. The Interamerican Development Bank (2014) finds that “the assessment of
additionality was mostly based on qualitative descriptions, often lacking objective supporting
evidence”.
21. European Court of Auditors (2014). The effectiveness of blending regional investment facility
grants with financial institutions loans to support EU external policies, Special Report 16.
22. Oxfam (2014) A Dangerous Diversion: Will the IFC’s flagship health PPP bankrupt Lesotho’s
Ministry of Health?, Oxfam (2014) Investing for the few: The IFC’s Health in Africa, Eurodad (2014)
Where is the public in PPPs? Analysing the World Bank’s support for public-private partnerships,
Oxfam (2014) Moral Hazard? ‘Mega’ public-private partnerships in African agriculture.

20. For example, Di Bella et al. (2013) point out that “limited public information exists on the specific

The need for a new approach to public-backed private finance
Clear principles have been developed for the use of ODA.
However, as shown above, the same level of attention in
terms of contribution to sustainable development has not
been paid to other types of public finance, namely where it is
used to leverage private sector involvement.
Agreeing and implementing sustainable development
principles for public-backed private finance is needed to:
• Target all development finance towards sustainable
development outcomes
• Make the most of the role of the private sector to promote
social, economic and environmental development
objectives
• Minimise risks for people and the environment
• Ensure transparent and accountable processes for the use
of all public money
• Ensure that all development finance builds on
development effectiveness principles, including country
ownership, untying, and strengthening national
government systems.
• Contribute to low-emission development pathways and
increase resilience of local communities
“Blended financing platforms could have a great
potential, particularly where there is a benefit to the
public sector. Where they are considered however, it
is important to ensure that these arrangements are
subject to safeguards to verify that they contribute
to sustainable development. They must not replace
or compromise state responsibilities for delivering
on social needs. Such policies need to ensure fair
returns to the public, while incorporating social,
environmental, labour, human rights and gender
equality consideration.” (UN Secretary General, The
Road to Dignity by 2030)

Proposed principles
The principles proposed here are based on current practice
and existing international standards and treaty obligations.
By using existing standards that states have already signed
up to, the intention is to demonstrate that these are issues
that are already relevant and feasible to consider in
development projects that include the private sector.

coverage of countries. A full list of the instruments examined
will be available in a background paper – and many are
mentioned in the tables on pages 7 and 8.
In general, they include
• UN treaties relevant to sustainable development and
human and women’s rights
• Donor / institutions’ policies, tools and instruments of
development effectiveness and due diligence
• Voluntary codes of conduct for responsible investment

Application of principles
Each donor has different ways of monitoring and evaluating
development projects. The proposed principles offer a
benchmark against which their monitoring frameworks can
be assessed – they draw attention to the key issues that any
framework should address, at a minimum. They highlight that
projects must not only do no harm but also do good and
have the maximum positive impact possible, in line with key
social, economic and environmental elements of the
proposed sustainable development goals. The principles fall
into two main categories:
• Partnership and project principles – which deal mainly with
how decisions are made with respect to project
development and implementation
• Sustainable development principles – which focus on the
impacts that the projects aim to have

Partnership and project principles:
There are some principles that should govern which private
sector partners are chosen and the processes and
procedures common to all projects. Many donors have
already made a good start on implementing these more
operational principles.
• Build on development effectiveness principles and
SDGs – in order to be most effective, national
governments, citizens and local businesses should set the
agenda. Developing country governments should be
represented on an equal footing where decisions of
projects and strategies are made, particularly within donor
institutions. Global agreements, and in particular the
proposed SDGs should set the overall objective and
direction of travel. All financing should be guided by
development effectiveness principles such as untying aid
and the use of country systems.

They are intended to provide a check-list for donors to
ensure that key issues have been taken into account when
deciding on using public resources to support the private
sector.

• Show additionality and value for money –
governments need to be transparent on the terms of
finance, with clarity on expected financial and/or
development additionality as well as assessment of costs
of different options.

The instruments have been chosen to represent a range of
institutions active in the field as well as good geographical

• Share risk and minimise debt – governments need to
be sure that leveraging does not create excessive risks or

debts that could jeopardize future development and that
there is a fair allocation of risk to all parties. Any liability
created should be offset by revenues generated
throughout the life of the project.

essential services for poor communities. It is also important
to address differential access of men and women to property,
assets, credit, employment, and education; and to alleviate
women’s unpaid care burden.

• Ensure transparency, accountability and
participation – projects should be designed,
implemented and monitored in a participatory and
inclusive way with full transparency and meaningful
participation and consultation, including free, prior and
informed consent for all affected communities. All
bidding and procurement processes should be
transparent. All project documents should be in the
public domain, including expected impacts and rate of
return. Affected communities, NGOs and other parties
should have access to complaints mechanisms that are
transparent, fair and effective.

Equitable environmental sustainability – environmental
sustainability is a key pillar of sustainable development.
Safeguards to prevent and mitigate environmental harm are
somewhat represented in current approaches. However,
much more could be done to promote a positive contribution
of the private sector to environmental sustainability, where
access to systems, measures and technologies is inclusive.
For instance, mechanisms for pollution control, waste
management and for mitigating and adapting to climate
change should be transferred to vulnerable or poorer
communities. In addition, projects should have the obligation
not to destroy natural resources and to promote their
sustainable management and the restoration of degraded
ecosystems. Projects should also keep greenhouse gas
emissions in line with low-carbon development pathways,
promote sustainable access to energy and actively contribute
to increasing the resilience of communities.

• Ensure good corporate governance – public funds
should only be channelled through private sector
partners who are committed to upholding human rights
principles and standards, as well as sustainable
development principles and standards, across their
entire operations.

Sustainable development principles:
While donors are often good at looking at the operational
elements of a project involving the private sector, they are
much less advanced in monitoring the potential
development impacts of a project, beyond the immediate
outputs. It is important to look at maximising benefits that
a project could bring, as well as ensuring that interventions
do no harm.
Poverty alleviation and social development – whilst
some social aspects of development are covered by
current instruments and standards, these are quite
disparate. Significant improvements to systematically
addressing impacts on all dimensions of poverty and
vulnerability are needed. For example, there should be
standards in place to close the gender gap and to secure
access of women and vulnerable communities to – and
control over – land. Projects should avoid land grabs and
ought to help develop inclusive communities, e.g. through
infrastructure provision that enhances the access to

Inclusive and sustainable economic development – a
more robust approach to assessing the quality of economic
development is necessary to ensure that economic
development is sustainable and reaches the majority of the
population. The focus should be on building thriving
domestic markets, supporting local business and ensuring
that marginalised groups such as women, children,
indigenous groups, or people with disabilities have access to
decent jobs and sustainable livelihoods. In particular, donors
need to think about whether the intervention is contributing
to economic diversification, fostering strong linkages
between foreign investment and local businesses. All
businesses should pay a fair share of tax.

Next steps
These initial proposals will be developed further and a final
version presented in Addis Ababa in July. We welcome
comments and suggestions from governments, business,
international institutions and civil society groups.

Implement standards on community consultation before project approval (FPIC) and in project design,
implementation and monitoring
Publish spending of all projects under International Aid Transparency Initiative (IATI); project data, including
contracts, terms and conditions, and financial information should be made available under open data
standards.Ensure that affected communities, NGOs and other parties have access to complaints
mechanisms that are fair, transparent and effective

ODA should only be channelled through private sector partners that:
-a
re committed to upholding human rights and sustainable development principles and standards across
their operations;
- have clear monitoring and accountability mechanisms;
- observe local and national laws and international standards, including on anti-corruption;
- have sustainable exit strategies to ensure long-term benefits.

Identify and prevent any negative impact on groups
marginalised based on gender or sexual orientation,
including changes in livelihood, likelihood of violence,
access to assets and labour discrimination.

Improve quality of livelihoods of poorest groups,
indigenous peoples, people with disabilities and women
Provide essential infrastructure to poor communities
Improve access to essential services, including health,
education, energy and financial services
Assist communities to use their cultural heritage for
economic development, consistent with their wishes,
customs and traditions

Ensure that leveraging does not create excessive risks or debts by ensuring fair sharing of risk of risk and rewards
Ensure that over the course of the payment of the public liabilities created by the project, it generates the public
revenue to repay these liabilities in full

Share risk and minimise debt

Sustainable development principles for public private finance

EC Principles on Blending

Avoid investing public money where other sources of finance might already be available without the
involvement of donor agencies
Develop a coherent approach for measuring additionality and applying it to all projects as early as possible

Link all projects to national development strategies and to SDG targets
Apply development effectiveness principles to all projects where public money has been used, e.g. through
untying aid, use of country systems for the design and implementation of projects, and ensuring donor
coordination. Developing countries must participate in decision-making on projects in donor institutions.

Build on development
effectiveness principles and
SDGs

Key relevant instruments

Explanation

Principles

Partnership and project development principles for public private finance

Poverty alleviation and social
development

Equitable environmental susatinability

Inclusive and sustainable economic development

Avoid increasing economic, social or cultural
marginalisation of vulnerable groups.
Avoid generating excessive debt and risk that could
jeopardize future development

Build thriving
domestic markets

Promote technology transfer, linkages between FDI and
local firms, helping local firms move into higher valueadded activities.
- Provide services, e.g. financial services, that assist
development of local SMEs

SDG8, OECD MNE Guidelines, ICESCR

UNSG Synthesis Report, AfDB ISS.

Comply with letter and spirit of local taxation rules
Do not structure company to take advantage of offshore
financial centres.
Refrain from seeking tax exemptions and engaging in
aggressive tax planning, which deprives poor countries of
tax revenue

Pay a fair share of
tax

Publish financial information on a country-by-country or
project-by-project basis
Publish details of beneficial ownership and company
structures
Encourage supplier and contractors to adopt good tax
practice
Actively target benefits to vulnerable groups and
distributional effects to the poorest groups

Observe labour standards including within supply chains
and among contractors
Avoid discriminating against marginalised groups based
on gender, ethnicity, disability, social/cultural grouping,
sexual orientation or income

UNCFS Voluntary Guidelines on the Responsible
Governance of Tenure of Land, Fisheries and Forests
in the Context of National Food Security, VGGTs, UN
Basic Principles and Guidelines on development
based evictions and displacement

Ensure secure and equitable access to land for
marginalised groups
Promote land use practices and technology that improve
land and soil quality
Promote sustainable land use
Ensure free, prior and informed consent in decisions over
land use

Mitigate and adapt Reduce indirect and direct GHG emissions.
to climate change Avoid new projects with high CO2 emissions such as
coal-fired power stations
Ensure projects do not threaten land rights and food
security or increase vulnerability of communities or
ecosystems

Avoid adverse social and economic impacts from land
acquisition or change of use
Avoid expropriation and dispossession of local
communities from land unless absolutely necessary and
avoid forced evictions
Improve or restore livelihoods and standards of living of
displaced persons